George Osborne said a deeper-than-expected contraction in UK growth in the fourth quarter would not deter him in his drive to reduce Britain's deficit.
He said official figures showing that GDP shrank by 0.3pc in the final months of last year showed that Britain faced real problems, including sagging demand in the eurozone.
However, it would not undermine the government's resolve on its austerity policy.
The Chancellor has faces pressure from the IMF and the Opposition to slow the pace of budget cutbacks.
"We can run away from these problems or we can confront them," Mr Osborne told reporters in Davos. "I'm determined to confront them so we go on creating jobs for people."
He faced criticism.
Former Bank of England rate setter Danny Blanchflower said: "Osborne said the economy is 'heading in the right direction' not clear why he thinks economic decline is a good idea?"
Damian McBride, Gordon Brown's former aide, tweeted: "What on God's Green Earth was Osborne doing eating pizza in Davos when he knew GDP was back in negative territory?"
David Cameron and Mr Osborne were reported to be in high spirits over dinner at a pizza restaurant in Davos last night just hours before figures showed the economy is slipping back towards recession.
Earlier a Treasury spokesman said: ""The official forecast was that the UK economy would contract in the last quarter of 2012 so this figure is not unexpected. It confirms what we already knew - that Britain, like many European countries, still faces a very difficult economic situation.
"It underlines what the Chancellor said at the Autumn Statement and the Governor of the Bank of England said this week: while the economy is healing, it is a difficult road.
“While today's data confirms the scale of the challenge facing the British economy, this week has also seen the strongest yearly increase in jobs for over 20 years. A million new private sector jobs have been created and the deficit is down by a quarter."